How to Prioritize Your Financial Needs

Without question, these are the two essential pillars of financial success, but they’re missing a key intermediate step that­—if neglected—makes it impossible to develop a plan that can meet your goals. You must determine the priority of your financial needs in order to establish a starting point.

A financial plan can be thought about as a series of timelines that start, continue and finish on their own schedules. These timelines will transition with life’s great financial milestones, and they will help define how much you contribute to or rely upon your assets over the course of your life.

Thought about another way, your ability to contribute toward your future financial needs will determine which goals you decide to pursue and how long those timelines will need to be. We’ve detailed several goals from the perspective of their place on the hierarchy of needs to help in considering your priorities:

Retirement

The greater the goal, the greater the effort. Retirement savings are intended to support your quality of life over the course of decades, so it’s no surprise that most people find these contributions are the most expensive part of their financial plan. It’s a non-negotiable top priority for anyone without a stockpile of liquid assets or dependable passive income source.

You would do well to extend your timeline for retirement contributions as long as possible, meaning start early and extend right up until you stop working. You’ll likely be working toward a fixed total savings target, so a longer timeline means your periodic contributions may be smaller.

Family Commitments

It’s fairly easy to identify top priority goals: they’re intended to maintain quality of life. Close family members with exceptional health or developmental needs­­—whether they’re your children, parents, siblings or otherwise—may require the highest order of consideration in your plan.

If those family members that need your attention could outlive you, then these commitments will help dictate how you prioritize your estate planning efforts. In this case, your estate would need to be structured to ensure the maintenance of your family member’s quality of life, so it would represent a top priority. But if you do not have younger family members with exceptional needs, then you have much more flexibility in determining how high of a priority, as well as how large, your estate should be.

Education

It may sound unsympathetic, but funding a child’s higher education tends to fall somewhere between necessity and luxury. The rationale for relegating this to the second tier is two-fold: The cost is not tied to maintaining anyone’s immediate living standards, and your children have the rest of their working lives to pay student loans if necessary.

Perhaps helping children shoulder the burden of college expenses is, in fact, one of your highest priorities. But the timing of a large one- (or two-, or three- or four-) time expense may be too much to accommodate late in your working years. Sallie Mae recently found that 6 in 10 parents make regular deposits to their college savings funds; setting up automatic monthly deposits could decrease the recurring outlay to a small enough level that it’s barely noticeable.

Lifestyle

Moving further away from the essentials, it’s perfectly reasonable to prioritize indulgences assuming you still have financial bandwidth once your genuine needs have been met. This can be an intelligent undertaking: consider the wisdom of planning many years in advance for the expense of a second vacation home in the decade before retirement—let’s call it a preview of life’s next chapter—as opposed to waiting until you arrive there before taking any action. You might not want to group this with your retirement planning effort since it’s a luxury and the timelines don’t overlap neatly, so it can fit into your plan as a dedicated lower-tier priority.

Needs and extravagances alike derive the same benefits from clearly prioritizing your financial goals far in advance. You can determine how best to balance your contributions over long timelines and you’ll gain the clarity and peace-of-mind that comes with a predictable plan.